Arabica coffee posted the biggest rally in more than a decade as extreme weather

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Arabica coffee posted the biggest rally in more than a decade as extreme weather threatened supplies from Indonesia to Brazil, the world’s biggest grower and exporter.

In Brazil, where drought is scorching crops from coffee to sugar, Sao Paulo and southwest Minas Gerais, the top arabica-producing state, will receive about one 10th of normal rains in the next 10 days, according to Donald Keeney, a senior meteorologist at MDA Weather Services in Gaithersburg, Maryland. In Indonesia, the second-largest exporter of robusta beans, heavy rains threaten crops in Java and parts of Sumatra, according to MDA.

Arabica prices surged 26 percent in seven sessions, the biggest such rally since July 2000. Brazil had the hottest January on record, and the least rain for the period in 20 years, according to Sao Paulo-based Somar Meteorologia. The supply threat may signal higher costs for retailers including Starbucks Corp., the world’s largest coffee-shop chain.

“If Brazil doesn’t get enough rain by the end of February, the crop losses are going to be bigger,and we could rally 30 to 40 percent more from here,” Sterling Smith, a futures specialist at Citigroup Inc. in Chicago, said in a telephone interview. Indonesia forecasts “added to concerns about supplies.”

Arabica coffee for March delivery jumped 5 percent to settle at $1.431 a pound at 1:36 p.m. on ICE Futures U.S. in New York, after reaching $1.437, the highest for a most-active contract since May 15.

Bull Market

On Jan. 31, the commodity settled at $1.252, up 23 percent from a closing low in November and entering abull market. The commodity surged 29 percent this year, the most among the 24 raw materials tracked by the Standard & Poor’s GSCI Spot Index.

The price fell 23 percent last year, the third annual drop and the longest slump since 1993, in part because bumper crops in Brazil and in Colombia, the second-biggest supplier of arabica coffee.

Arabica beans are favored by specialty companies such as Starbucks, while the robusta variety is used mainly for instant drinks by companies including Nestle SA. Vietnam is the largest exporter of robusta beans.

In London’s NYSE Liffe, robusta coffee for May delivery advanced 2.6 percent to close at $1,848 a metric ton, leaving prices up 9.8 percent this year.

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